Galileo To Buy Apollo Through IPO

<I>Rosemont, Ill.</I> - Galileo International Partnership late last month became the second CRS to announce a public sale of its stock--and revved up the interest in that news by stating it will use the money raised to buy back Apollo Travel Services, its U.S. marketing arm.

Under the terms of a "non-binding agreement in principle," Galileo will raise about $400 million with its initial public offering, and borrow additional funding to buy back three national distribution companies: Apollo in the United States, Galileo Nederland in the Netherlands and Traviswiss in Switzerland. Apollo owners United Airlines, US Airways and Air Canada will receive a total of $700 million, and a possible additional payment of up to $200 million in six years "for assistance in growing the business of Apollo Travel Services."

Offering stock for sale to the public is a recent innovation for the CRSs, which until now were owned entirely by the airlines. The Sabre Group was the first to try a run at Wall Street; it sold off 17.8 percent of the company, raising $627 million for its owner, AMR Corp., late last year (BTN, Nov. 4, 1996). Continental Airlines' CEO and CFO have both recently been quoted as saying they would like to sell part of their shares in System One/Amadeus.

For the corporate market, insiders say, the Galileo move streamlines the CRS's operations in a rapidly changing technological environment, underscores the waning importance of CRS ownership in a regulatory environment that mandates unbiased displays, and reduces the clout of United Airlines in making decisions for the American market. UA remains Galileo's largest shareholder, but it goes from controlling Apollo, of which it held 77 percent, to being the largest--but not the majority--shareholder of Galileo, with 38 percent (see chart, page 1). In filing a public document with the SEC, Galileo also makes public what until now has been closely-held financial information about the business of the CRS.

In keeping with SEC regulations, Galileo declined comment during the mandated "quiet period" between its SEC filing and the actual stock offering. In the published press release announcing the IPO, Galileo president James Barlett said that combining the resources of Galileo and Apollo into a single unit "will create an even more customer-focused organization that will enable us to better serve our customer base."

Many insiders noted that the CRSs, originally envisioned as a way to push agents to their product with biased displays, have lost much of their value to the airlines as that practice has been outlawed. With technology stocks rebounding, the IPO market hot and Sabre's successful model, the carriers must at least be considering "cashing out" of the CRS business.

Said Greg Merkley, former general manager of Galileo's Asia/Pacific region and now president of Travel Technology & Magic in Evanston, Ill., "The shareholder airlines are beginning to take some of their profits out of the business as they realize that maybe they don't need to be owners of a CRS. Each of the airlines has its own distribution strategy for the future, and the CRS may not play as big a role as it has in the past. For United, which has basically made all the decisions for the U.S. market, this means less of a say, but they say they don't care. They must believe the CRS is less important than they once did. But I'm not sure British Airways is going to be as willing to sell as Air Canada, for example; BA likes the close tie-in with a CRS in the U.K., and finds it really works for them.